Are Another 1.3 Million Americans About To Drop Out Of Labor Force (And Send Unemployment Plunging)?

With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?

As we warned in November, the only two charts that matter ahead of Friday's likely distorted nonfarm payrolls report.

First, the labor force participation rate, which plunged from 63.2% to 62.8% - the lowest since 1978!

But more importantly, the number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans! This was the third highest monthly increase in people falling out of the labor force in US history.

At this pace the people out of the labor force will surpass the working Americans in about 4 years.

And if the Congress does not pass the bill to extend emergency aid - set to expire Dec 28th - then up to 1.3 million more people will be added to that list of 91.5 million already our of the labor force (and another 800,000 more to come in further months)...

This has profound implications for the oh-so-important unemployment rate that the Fed is so dependent upon...

JPM's Feroli: One observation that could set an upper bound on thinking about a participation effect is to hypothesize that all 1.3 million EUC claimants exit the labor force after benefits expire in 1Q (again, should Congress allow that to happen). In that case, the unemployment rate would fall by 0.8%-pt, obviously an extreme example. Some of the Fed studies can help to narrow the range of outcomes.

One of the more recent works (Farber and Valletta from the San Francisco Fed) indicates that about a fifth of long-term unemployment is due to extended benefits. With just over 4 million long-term unemployed recently, this would imply that the absence of extended UI benefits could lower the unemployment rate by 0.5%-pt.

This will directly impact the Fed's credibility to manage the economt in a "data-dependent" manner:

JPM's Feroli: Setting aside the normative aspect of whether from a public policy perspective this is a desirable or undesirable outcome, such a fall in the unemployment and participation rates could create some tricky choices for Fed policymakers as they assess the health of the labor market.

Remember, while consensus is convinced Taper is a positive (the Fed wouldn't pull back unless everything is golden); we suspect, and today's Treasury Auction Failure supports that thesis, that the Fed is looking for excuses to Taper (or shift policy away from QE)...

3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government's debt (which it clearly is), then the game accelerates away from them very quickly - and we suspect they fear we are close to that tipping point

Simply put, they are cornered and need to Taper; no matter how bad the macro data and we are sure 'trends' and longer-term horizons will come to their rescue in defending the prime dealers' clear agreement that it is time...

The FED doesn't want to taper, even if the unemployment rate decreases, they will find weakness which justifies further easing (bank bailouts). It's not yet time to completely destroy the strength of America, but soon. Remember, the profane still have their guns (NYC and CA excepted).

Labor participation rate is a classic head and shoulders pattern, but we all know technical charting means nothing when the invisible hand is at work.

Remember how Death of a Salesman was the siren call for that 'lost' generation crushed in the 1929 stock crash ? How they all wanted meaning to their lives and One More Deal ? How the flower children rallied and hated their 'arrogant' parents for their blind consumerism and clinging to the talking points of corrupt think tanks pre-war ?

Yeah. Good times.

Energy progressive taxation, healthcare expenses (drug & insurance) and non-core inflation will drive people into a desperate hunt for yield to offset their declining purchasing power. Their generational shame as pensions & retirement plans returning 3% (net trailer) are falling vs. a 50% ROI market will force them into higher risk assets. They will MOMO seeking The One More Deal to offset the gambler remorse of 2007 and validate their egos stoked by 40 years of direct-to-consumer marketing pushes. Their lacks of functional families, borne of their rabid support of progresive family structures have left them alone in old age. The only thing holding them together is the media message drilled into them since 1960 George Lois ads which told them they were 'unique' and a superior generation. They will cling to that superiority through ethical product purchasing no matter how bad it hurts their dwindling savings.

Like Willie Loman, they are going to be the elderly greeter at the door of your big box store or retail dealership. They will never retire. It will be worse than Japan because their remorse will become resentment at the next generation. They who never had ambition to build their own firm or speak their mind will suddenly feel that the world deserves their 'wisdom' and in turn, economic growth must become their charity.

On that note, who's up for some beer pong & Amazon cyber monday sales ?

I had an economics professor who loved to say "Figures don't lie, but liers love to figure." He harped on the unreliability of government data. He had a theory that there was a strong inverse correlation between government lies in economic data and freedom.

I've told this story a few times. Wifey works in city in the northeast with mostly minority workers. One person had early onset of alzheimer's and was making critical errors in their job and it was a person that worked for 35 years. No one could figure out how to legitimately get the person SSI disability. Seriously, it took almost a year to get the person any benefits because the SYSTEM isn't set up to handle legitimate cases. In the interim, the company took it on the chin and gave the person menial tasks to do.

These guys know the ponzi is coming to an end. That is why they ran up the derivatives, to cash out. Their derivatives are senior to creditors (savings in a bank). The ponzi started at $1.00, which is now worth maybe $.04. This is known as the end.

It won't be the end of the corporation, just an end to your bill of rights explicitly. A complete fascists socialist makeover from the land of the free to the land of the slave.

What does it matter anymore? The Kremlin had fantastic business sense which is why there was no unemployment in the old Soviet Union. The news was always positive. The people that were asked for their opinion, had a gun held to their head to confirm just how happy everyone was.

The one for people with paychecks looks quite healthy, at least to them. They buy and sell from one another. Some of them produce actual goods. They buy the vacations, the i-gadgets, the campers and RVs and eat in restaurants. These people buy the $19 take-out pizzas and $3.50 coffees and they don't think twice before doing so. They keep NFLX and TSN in business...

The problem is that that economy is SHRINKING, while the bigger one composed of us peasants is growing rapidly...

There's the "most fit" (aka top 10%) who own most of the corporations and politicians (so, indirectly own the government). And there are the unfit (the losers in the bottom 90%) who are just food for the "most fit".

I don't see that. It seems to me that a lot of people who work for a living, perhaps most, are worse off than if they joined the FSA. Not me, thank goodness, but I still wonder what keeps those working poor on the job - we'd all be in a hell of a fix if they decided to bail.

They land at this outpost, and everything seems normal, homes and families, green grass, etc..

After a few disappearances, the team starts to question their surroundings, and finds out the outer shield that protects the town used to be much larger - the atmosphere is toxic - and over the years, as the energy cells started to give out, the shield was reduced, dooming those outside the perimeter.

Apparently everyone was wired with some kind of Google Glass bluetooth-from-hell device, so it would just retroactively edit their memories so nobody would question the neighbors disappearing.

Just like the participation rate going "down". Its just contracting until there's nothing left, like the doomed townspeople.

I guess the news media are the memory redacting part of the story, since it never gets mentioned.

When the 1.2 million unemployed drop off the assistance, where do they go? Is there another program to assist them further? I don't think it's that simple or is it?

Labor participation rate is more telling. The truest indicator of all is the underground economy where nothing gets reported and all transactions are cash or barter. I guarantee that there is a boom in non reported economic activity which is creating a subculture, a sub economy and a sub currency. Eventually it will morph into a sub state or sub civilisation. At what point does it have critical mass to outnumber the apologists for the status quo who still think they're in charge?

I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal;

I founds outs bout dis program where's some guy gits you on disbility for hundred dollas. Nows I don't have to work at alls. Gets me like twennyfive hundred a month. Free cell phone, medicaid, some food stamps too.

Then the guy was like, you don'ts see so good do you. I was like, no I'z barely see past what's five inches front my face. Guy said I must be gettin cataracts. So then he gets me a medicinual marijuana card. Now i'z even gets my drugs fo free.

Damn, this nots workin thin better than sex. With the cash I gots, prolly gets me sum of thats too.

This class is soon to outnumber the working class in America, and we have a future?

Written in hilbilly enrages people do do something about it. If I wrote it in ebonics then I'm just a racist who doesn't care about poor black people.

sounds almost like someone made an industry out of this and hired "a guy" to tell the people where to get what they need

where's some guy gits you on disbility

sorta like a recruiter for FSA

The commies ruled the streets in Germany before the brownshirts came in and cleaned up. It wasn't a fun time for either side of the game. Both were played like a fiddle. The Cossacks paid for the show.

I say old chap, I needn't avail myself of gainful employ either. I bought stock in the private companies that now run your jails. When your "guy" friend and you are in jail for disability fraud you'll be working plenty hard... for me as you labor in our sweat shops in the daytime and nurse your torn anal sphincter while crying yourself to sleep at night. Talley Ho!

This extended unemployment crisis, the collapse of consumer spending as well as the decline in home ownership rates are directly the result of the US Government -NOT- following a FDR style Keynesian economic policy.

This Obama administration's allegiance to:
1) low taxation of the rich,
2) zero-Tariffs policy and continued subsidization of job exporters,
3) agreement to extend MASSIVE Bailouts of the banking, insurance and financial markets,
4) shrinking Federal, State, and Local government (regulators, teachers, outsourcing infrastructure spending, etc),
5) and a continued reliance on the OIl/GAS sector
have all made this Presidency worse even then Bill Clinton's.

If you want this Right Wing Democratic Crony Capitalism out of office then you had better start organizing under Socialist and Green candidates. The Earth and our environment have started a count down to mass famine and violent weather shifts...time is running out.

The unemployment rate doesn't matter that is a misdirection, justification for an action.

For me what matters is the FED currently owns 33% and with no taper what happens if it reaches 100%?

Now lets play with this a bit ... as a model start sampling and it assumes the system is RIGGED AND GAMED.

So the FED is at 0%, the rest of the market at 100% and fleecing to say 10% a guess, FED exposure 0%.

Now try FED at 10%, the rest of the market at 90%, fed gets a little burned at say 1% on the previous guess.

Now ramp it up the FED's % with a larger market share and finding itself more and more fleeced :-)

*** With the FED at 100%, in a gamed market it fleeces itself by the 10%, not possible. ***

Think this *** is the doozy and they are trying to justify slowing the rate they are using money creation and hazard a guess at 66%+ of the market they will start to have serious issues. It will never make it to 100%, create a trillion, find you burned say 10% where this was intended to be on another not yourself. The deeper in they go with no taper the quicker it approaches the unanswerable question and a bit like Japan approaching a technical default. At a 1/3 it is already in way to deep that the % fleecing of itself becomes noticeable. A company year on year continually making losses on its books will start to have viability issue and a private business would be closed.

NOW APPROACH THE SAME ARGUMENT FROM SAY AN ACCOUNTANTS POINT OF VIEW WHILST CHECKING THE BOOKS. You create all this money to spend in your own shop by yourself yet you still show a loss in the shop, even a small one will raise many awkward questions that will need to be answered.

I reckon forced to taper, has to pretend the economy has a low enough unemployment level because pandoras box opens the closer it approaches 100% and probably a far lower level like > 50%. That leaves half as much again to achieve the lover level and in timescales you don't have 2 years at the current rate.

"with the public seeing only a rapidly collapsing unemployment rate as evidence of their success".

Until the public starts to see out of work friends and relatives going back to work, and high school and college graduates getting jobs commensurate with their education, they are not going to believe that things are getting better.

The only people who believe these lies are the few who get their information from the main stream media.